Reverse mortgages are “risky”. Fact: All reverse mortgages require you to obtain counseling from an impartial expert before the loan is funded. It is recommended that you include family members, trusted advisors, the family CPA, and the family attorney to be included in meetings. In the Federal Housing Administration (FHA) program, origination costs, closing costs, interest rates, and rate adjustments are capped. Reverse mortgages have federally mandated consumer disclosures.
Reverse mortgages have high loan costs. Fact: It is true that reverse mortgages generally include higher fees and costs than many traditional or “forward” mortgages. For FHA reverse mortgages the agency collects a Mortgage Insurance Premium to encourage lenders to offer the loan. That adds to loan costs. But the costs expressed as a percentage of amount borrowed drops over the years.
Reverse mortgages are new and unproven. Fact: FHA reverse mortgages were introduced in 1989, and more than 346,000 have been originated since then. FHA reverse mortgages have grown from 18,000 in 2003 to over 107,500 in 2007. Experts expect them to grow at a high rate annually for the foreseeable future.
Reverse mortgages are for “house rich & cash poor” seniors. Fact: Homeowners 62+ are now using reverse mortgages for many purposes including purchasing a house. They are a part of their financial and estate planning, with their CPA, attorney, or Certified Financial Planner®.
If I run out of reverse mortgages funds, I can be thrown out of my house. Fact: When you exhaust your reverse mortgage benefits you can remain in your home for as long as you want. Just as with any mortgage, you remain responsible for paying property taxes, protecting your property with homeowners insurance, and maintaining your home.
The lender will take title to my house. Fact: This is not true. You retain title, just like you do with a forward mortgage. Think of the reverse mortgage as a home equity loan with no monthly payments.
I can owe more than my home is worth. Fact: This is not true. All reverse mortgages are “non-recourse” loans. You can never be “upside down” like you can with forward mortgages. Example: You have an outstanding reverse mortgage for 25 years, and during that time the values in your neighborhood decline. At loan maturity, your house is worth $300,000, and your reverse mortgage loan balance is $350,000. You or your heirs still only owe $300,000, which is the appraised value of the house.
The lender will take part of my home’s future appreciation. Fact: Not true any more. Prior to today’s programs, some reverse mortgages did have a “shared appreciation” clause. Reverse mortgages are not available today with this clause.
I need to own my home “free and clear”. Fact: Not true. You can pay off your mortgage balance with the proceeds of a reverse mortgage if there are sufficient funds to do so.
When the reverse mortgage becomes due, the lender will sell my house. Fact: That is up to you, or your heirs. If either of you wants to keep the house in the family, simply refinance and pay off the reverse mortgage loan balance with part of the proceeds.
The loan will come due if I move into an assisted living facility. Fact: Not necessarily. You can leave your home for up to twelve months for a temporary stay in a facility. If your intention is to return to your home as your primary residence, your reverse mortgage does not become due.
My “so-so” credit or lack of income will disqualify me. Fact: Your income and credit score are not deciding factors for reverse mortgages.
The lender will own my house when I die. Fact: Not true! Your Executor has 12 months to sell the house. If they want to keep it in the family, they simply refinance it…and now they own it.
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